Microsoft reports weak financials, still failing in the cloud

Here’s a table which breaks down the results vs the same quarter last year, similar to one I made for the March figures. Numbers are in $millions:

Client

Revenue

% change

Profit

% change

Client (Windows)

3108

-28.7

2167

-33.32

Server and Tools

3510

-5.67

1349

-1.46

Online

731

–12.66

-732

-50.93

Business (Office)

4564

-13.33

2816

-16.17

Entertainment and devices

1189

-25.22

-130

-23.98

I am ignoring the hefty $1483 loss on “corporate-level activity” – though I noticed that despite announcing a projected reduction in headcount of up to 5000 by June 2010, headcount actually increased by 2% (around 1800) in the last 12 months.

Grim figures, though given the recession and that Microsoft still reported profits of $3987 for the quarter, not cataclysmic.

I expect Windows 7 will be a success and that the figures there will improve; further, if the global economy recovers (about which I am sceptical but ignorant) Microsoft’s results will no doubt reflect that. If Windows 7 does succeed, it will have spin-off benefits for other products.

Nevertheless, the company should be worried. Although we are not going to be abandoning our PCs and laptops any time soon, it doesn’t take much insight to predict that increasingly powerful internet-connected devices will tend to reduce the number of traditional computers we need, which will impact Office as well as Windows. On the server side, cloud computing will dampen demand for servers, particularly in the small business sector where Microsoft is particularly successful.

The challenge for Microsoft is to counter those trends by growing its online business, but that is not happening yet. Mobile is another potential growth area, but the figures for entertainment and devices show that Microsoft is not exploiting it successfully.

Further, if online does grow, that will damage the partner ecosystem which thrives on delivering and maintaining on-premise Windows and Office.

This could change; but only if that awkward third line in the table above undergoes dramatic transformation. Although there are signs of life, with promising technology like Azure and Silverlight, I am not yet convinced that Microsoft is even aware of its predicament, though with results like these it will be soon.